New retail funds take widely different tacks

Riverbridge Partners, a private money manager with a buy-and-hold strategy, and Whitebox Advisors, a hedge fund best known for betting against big banks exposed to the mortgage crisis, are both based in Minneapolis.

They also are both getting into the mutual fund business. And that's about where their similarities end.

A little history is order.

Why is Riverbridge seeking retail investors?

"Because the world needs another mutual fund," quipped Mark Thompson, the chief investment officer at Riverbridge.

The world has several thousand mutual funds. But Riverbridge has good performance to sell to clients who can't pony up $1 million for a private account.

Thompson left what is now Ameriprise Financial in 1987 along with now-retired John Wilke to start what is now Riverbridge. Thompson plans late this year to roll out a mutual fund version of the Riverbridge All Cap Growth portfolio, which has returned about 8 percent annually over the last decade.

That's double the return of its benchmarks, the Russell 3000 and Standard & Poor's 500. And Riverbridge also might launch a mutual fund version of the Riverbridge Eco Leaders (clean-technology and efficiency-driven companies), which has enjoyed success in recent years.

Over the last decade, Riverbridge client assets have grown from $330 million to $3.5 billion. The firm, owned by employees, employs 25 portfolio managers and analysts, financial advisers and others who work with 150 affluent families, pension funds and other institutional investors.

Thompson, 52, is an old-school investor who seeks understandable companies that build earnings and value over long periods.

"We avoid people trying to make a buck in a hurry," Thompson said.

One of the first companies Thompson bought at Riverbridge was Winona-based Fastenal Co., known for modest executive compensation and stellar performance. Fastenal has been one of the best-performing stocks in America because its low-profile management has turned manufacturing and distributing of nuts-and-bolts and hundreds of other industrial supplies into an art form.

A share of Fastenal, worth a split-adjusted 50 cents in the late 1980s, has traded around $50 per share in recent weeks. The other holdings in the All Cap portfolio include Starbucks, Stericycle, Microsoft, Ecolab and National Instruments. Its low-turnover portfolios over the last decade have outperformed in good markets and declined less than average in bad markets.

The firm's original clients include Wheelock Whitney, the Twin Cities business executive and philanthropist, and Okabena, the Dayton family office.

Meanwhile at Whitebox Advisors, CEO Andy Redleaf has launched the Tactical Opportunities mutual fund that includes the beaten-down likes of Bank of America, other financial firms, Best Buy, some corporate high-yield bonds, energy holdings. The fund was up about up about 11 percent in the first quarter.

Redleaf, a sometimes-contrarian, concluded correctly by 2007 that the financial firms were either dumb or lying about their risky mortgage portfolios. He ended up posting double-digit returns by shorting those firms as the stock market plummeted by early 2009.

Today Redleaf and his team manage about $2.3 billion in the hedge fund, down several hundred million from several years ago. The just-started mutual fund contains about $5 million.

"I thought there would be a nice opportunity in things that trade every day," Redleaf said. "Ten years from now, I would like people to be able to look at the Tactical Opportunities Fund and say this performed better than the Yale and Harvard endowments."

Redleaf, 54, a Yale-schooled mathematician who started Whitebox with a small group of analysts 12 years ago, has been an iconoclastic securities trader and portfolio manager at several shops for three decades. He believes that markets are irrational and driven as much by emotion and miscalculation as by the fundamentals.

That's what gave us the housing bubble and related financial market collapse that he predicted to Whitebox investors in late 2006, ahead of the curve.

Redleaf also founded Deephaven Capital, another hedge fund, nearly 20 years ago. Whitebox has stumbled a couple of times with direct investments in Sun Country Airlines in 2006, prior to its bankruptcy, and in a Illinois ethanol plant during the recession. Those messy experiences convinced Redleaf to stay with behind-the-scenes securities investments.

Now he's betting that investors are discounting a lot of big financial and energy companies that are still selling at prices off their pre-recession highs. Part of his bet is that big financial institutions, which have proved time and again more powerful than regulators, will eventually be back in favor.

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com

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